Set in the Londonesque city of Ankh-Morpork, there are three characters that dominate the book:

Rincewind, a "wizzard" of the magical Unseen University with a talent for languages and cowardice, who was dishonorably graduated after one of the eight most powerful spells on the Disc lodged itself in its brain and crippled his ability to learn any more magic;

the Luggage, a large chest made of magical sapient pearwood which follows its owner (Twoflower) wherever he goes, in this case on hundreds of tiny feet, and which can store anything that's put into it but only reveals clean underwear when it's opened again.

A chance meeting brings Twoflower into contact with Rincewind, who's just about the only person in Ankh-Morpork who can communicate with Twoflower and who's extreme instinct for avoiding trouble neatly counterbalances Twoflower's instinct for finding it. Twoflower hires him as a tour guide, then indirectly causes the destruction of a small part of the city.

The two of them leave the city (with the Luggage following steadfastly behind) and embark on a scenic tour of the rest of the Disc's less-civilized areas. Thus they encounter an abandoned demon temple, an exotic tribe of dragonriders, the waterfall cascading over the Rim of the Disc, and a scientific expedition to send men off the edge of the Disc and (hopefully) come back again.

While the book starts idly enough, things pick up quickly once the main characters meet each other. Pratchett's knack for parody and satire (not to mention puns) is obvious at times and subtle at others, making his books well worth re-reading.

However, while the characters are fun, they're also somewhat oversimplified. Rincewind's primary character trait is to run away from trouble, but events constantly conspire to keep him coming back. He never returns because he wants to, or has a sudden change of heart -- he does it because he's forced to. Twoflower, meanwhile, is defined by his enthusiasm and utter naivete. Both are funny, but after a while they become their own cliches. By the end of this book neither character is really developed in any way.

It's clear that The Colour of Magic is just an introduction to the Discworld and these characters, but none of the four parts that make it up tell a truly developing story about them. Instead it ends on a cliffhanger (actually a Dischanger) which leads directly into Pratchett's second Discworld novel, The Light Fantastic. That book does all the things this one doesn't, and ends on a far more satisfying note. For all intents and purposes, the reader should regard The Colour of Magic and The Light Fantastic as a single story and enjoy them together.